Class action against mortgage lender will proceed

A federal judge in Philadelphia has determined that a class action lawsuit against HSBC USA Inc. and others can proceed — for now. The court was ruling on a motion to dismiss filed by the mortgage lender. The plaintiffs are not out of the woods yet, though: Down the road, HSBC could file a motion for summary judgment which, if granted, would put an end to the litigation.

The ruling caught our attention for a couple of reasons. For one, it reminds us that the mortgage debacle leading up to the 2008 financial meltdown is still affecting consumers. Perhaps more importantly, it teaches a valuable lesson about diligence in real estate transactions.

The dispute goes back to the home mortgage loans plaintiffs obtained through HSBC between January 2006 and April 2008. In order to qualify for a down payment of 20 percent or less, the borrowers agreed to purchase mortgage insurance from one of four insurers identified by HSBC. The borrowers now claim that HSBC received kickbacks from the insurers in violation of the Real Estate Settlement Procedures Act of 1974. They also accuse the lender and the insurance companies of unjust enrichment.

The defendants had urged the court to dismiss the complaint because the statute of limitations had expired. By law, the plaintiffs should have filed their complaints within a year of the alleged RESPA violations.

The court agreed with the plaintiffs on this point, though. The plaintiffs said the documents they received from the defendants were all boilerplate. Mortgage documents, legal disclosures and affiliated business arrangement documents were all standard forms. The language of these forms “made it virtually impossible to uncover the true nature” of the lender’s relationships with the insurance companies, the court said.

Further, the plaintiffs had “fully participated” in their dealings with the lender and reviewed all of the documents in question. Because they had been diligent during the loan process, the judge would not grant HSBC’s motion to dismiss.

The lesson is simple: Real estate transactions may look straightforward, but they often are not. Borrowers should consider protecting their interests by working with an experienced real estate attorney when purchasing a home or commercial property.